Hartford quarterly profit drops below analyst estimates

AlistairBarr

SAN FRANCISCO (MarketWatch) -- Hartford Financial Services reported lower-than-expected quarterly profit late Wednesday as the insurer was hit by a string of charges related to variable annuities, asbestos, catastrophes and the acquisition of a thrift last year.

Hartford shares fell 3.2% to $23.09 in Wednesday's evening-trading session after the results.

Hartford
HIG, -1.61%
said late Wednesday that second-quarter net income came in at $76 million, or 14 cents per common share. That compares to a net loss of $15 million, or 6 cents per common share, in the same period a year earlier.

Core earnings, which exclude net realized investment gains and losses and other items, were $92 million, or 17 cents per common share.

Hartford was expected to make 79 cents a share, according to the average estimate of 18 analysts polled by FactSet.

DAC

Results included a so-called DAC unlock charge of $230 million, after taxes. A year earlier, Hartford got a $360 million after-tax boost from this.

Deferred acquisition costs, or DAC, are related to variable annuities, which are products like mutual funds wrapped up in an annuity. Fees generated over the life of these annuities help insurers cover the upfront costs of selling the product. These expenses are spread out as DAC.

Most insurers assume that the stock market will rise each year when valuing their DAC assets. When that doesn't happen, like in the second quarter of 2010, insurers have to report a charge based on the difference between the fees and the cost of the sales. When markets rise more than expected, the opposite happens.

Hartford also reported a charge of $110 million, or 22 cents a share, to increase reserves for asbestos claims on environmental policies it sold in previous years.

Thrift

Hartford also took a goodwill impairment charge of $100 million, or 20 cents a share, from its 2009 acquisition of Federal Trust Bank. Hartford bought the thrift to help it qualify for government bailout money from the Troubled Asset Relief Program. Read about insurers' efforts to get government help.

Catastrophes

Catastrophes in the second quarter cost Hartford's property and casualty insurance business $87 million, or 18 cents a share, higher than budgeted, the company reported

Excluding catastrophe losses and the charges related to DAC, asbestos and the thrift purchase, Hartford said it would have generated operating profit of $460 million, or 92 cents a share.

"Hartford performed well, reporting another quarter of profitability in spite of market volatility, higher than expected catastrophes and several one-time events," Liam McGee, chief executive, said in a statement.

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